Journées de l’Economie

I was at the Journées de l’économie in Lyon last week: this is a popular economics festival at which literally thousands of members of the public show up to listen to people like yours truly.

I was on a Brexit panel on the Wednesday, and tried to explain to a French audience how serious the issue is for us (I start about 30 minutes in, but the whole thing is worth listening to; I thought Jon Henley in particular, who preceded me, was really excellent and made all the points you would have wanted to make yourself); there was a more academic session on a very French topic (“Mutations du capitalisme“) on the Thursday,  at which Daniel Cohen made a couple of points that I thought were very thought-provoking (and also very French).

What if it was the Europeans picking the cherries?

Outside the UK, where words apparently mean whatever you want them to, it is universally understood that in order to avoid a border on the island of Ireland, Northern Ireland (and preferably the UK as a whole) needs to stay in an equivalent of the existing EU customs union, and the European Single Market. Inside the UK, on the other hand, it seems to be commonly accepted that the UK needs to leave the Single Market because it has to restrict freedom of movement.(An argument that I have never accepted, but that is another matter.)

And so we have a problem.

In fact, however, the only bit of the European Single Market that the UK really has to stay in to avoid a border is the single market for goods — this would of course require it to apply European goods standards, accept all relevant ECJ rulings, and so forth.

Quite properly, the EU is ruling out cherry picking: the UK cannot stay in the bits of the Single Market it likes, and not in others. But what if it were ourselves, rather than the British, who picked the cherries?

In particular: it would be completely unacceptable for the UK to remain in the single markets for capital and services, while excluding itself from the single market for labour. This is, we all understand, never going to happen. And I suspect that they wouldn’t be allowed to remain in the single market for goods alone, either, and that proposing this is therefore a non-starter.

But I’m going to propose it anyway, in the full knowledge that I will be (probably quite properly) shot down, since it seems to have a few things going for it.

First, we would avoid borders, not just within Ireland but more generally, and this would help businesses across the continent. Supply chains would be unaffected, and so forth.

Second, the British would not have cherry picked — something that we could never allow a mere third country to do. We Europeans would have done the picking, on the grounds that it suited us to do so; and that seems to me like an important distinction.

Third, however, the Brexiteers would be able to say to their voters that they had restricted freedom of movement.

Fourth, however, this deal would only be made available on the basis that the UK also stayed in a customs union with the EU, since that would be required to avoid borders, which is the whole purpose of the exercise. So EU politicians would be able to point out, to their own populations, that the UK (a) was unable to do its own trade deals with other countries (b) had to accept the jurisdiction of the ECJ or an equivalent, such as the EFTA court, as it affects the single market for goods (c) had been unable to cherry pick as it saw fit.

Fifth, everyone could explain to their electorates that they had had to make these compromises in order to help preserve peace in Ireland.

Sixth, Ireland would avoid a border.

This would not be a great deal for the UK. Yes, they would get the frictionless trade that they say they want, and that they can’t get outside the Single Market and a customs union with the EU. They would keep their car industry, remain in Airbus supply chains, and all the rest of it. And that ought to be something that they would welcome. But: they would lose access to the single markets for services and capital, as long as they remained outside the single market for labour. They would lose jobs and tax revenue from the City. As a service economy, this is not the deal that they would have chosen: the UK would not be better off outside the EU than it is at present. But such a deal would be a lot better for them than the rather shallow, goods-only, friction-creating FTA arrangement that the UK seems to be heading for right now (if it gets even that). And they would always have the option of going for a deeper arrangement involving all four freedoms, if they decided that that is what they wanted at a later date.

What could the UK say on the border before getting to the second stage?

You sometimes hear the British say that they can’t make progress on the border before getting to the second stage of talks. While superficially plausible, the claim strikes me as disingenuous: there are surely several things that they could say right now that would make a lot of difference. For example, they could pledge that

  1. The United Kingdom will remain in an equivalent of the customs union and the single market, if that is required in order to avoid a hard border
  2. Northern Ireland will remain in an equivalent of the customs union and the single market, if that is required in order to avoid a hard border
  3. They will change their red lines regarding the nature of their exit from the EU and their future relationship with it, if that is required in order to avoid a hard border

As I think about it though, perhaps the key thing they should say is that (a) they accept that a customs union is defined as a group of countries surrounded by a common external tariff barrier and border; (b) that in addition, the European Single Market has always been and needs to be protected by an external border of some sort in order to maintain its product standards and so forth; (c) that they accept that Ireland will remain a full member of the EU, and hence of its customs union and single market; and (d) that there will therefore continue to be a border between Ireland and all third countries or regions not belonging to the European Single Market and a customs union with the EU.

None of these points is a matter of opinion, or subject to negotiation. (1) to (3) are a matter of fact or definition, and (4) is a logical consequence of (1)-(3). And it is very difficult to accept that you are negotiating with someone in good faith if they refuse to accept that black is not white and that 2 + 2 = 4. Right now the UK seems to most outsiders to be talking out of both corners of its mouth, claiming it doesn’t want an Irish border, while preparing to do things that will require one. How can you negotiate seriously with such a country?

If the UK were to accept (1) through (4), publicly, then its claim to want to avoid a hard border in Ireland — including any physical infrastructure, something that Mrs May very helpfully added in Florence — would sound rather different. (Right now, it sounds like hypocritical posturing.) Publicly accepting (1) through (4), and saying that they were willing to do whatever it takes to avoid a hard border, involving any sort of physical infrastructure, would mark a big step forward in my opinion. And it doesn’t seem like a lot to ask for.


The case for pessimism: out of date?

The great advantage of a blog like this from my point of view is that it provides me with an archive of things I have written and said over the years that don’t end up on my cv. And so this is a post written primarily for my own benefit, linking to an article I wrote for the Irish Mail on Sunday in the week after the UK triggered Article 50 (there wasn’t an online version available at the time).

I was pretty pessimistic back in April — perhaps overly so. Since I was focusing on the British side, how could I not have been?  On the other hand, if I were writing the piece today I would place less stress on the economics, and more on the politics of the Border. That greatly limits the range of acceptable outcomes — but who is to say that the Irish government won’t succeed in its efforts? The recent EU paper on the subject is gratifyingly hardline in its approach to the issue: the language relating to avoiding “a hard border, including any physical border infrastructure” is exactly what we would have wanted, and has probably not been sufficiently commented-upon in Britain, ruling out as it does the Canada-US and Norway-Sweden options that some Brexiteers seem so keen on.

Since time is running out, and bespoke transitional arrangements are even less obtainable than they were a year ago, the most plausible and realistic way for the UK to avoid a cliff-edge would seem to be a transition involving the status quo, more or less.* That would kick the border issue into touch for a couple more years: and once we get to that stage, who knows what might eventually happen?

*Although I do still think that the cliff is a possibility, for the reasons stated in that column or here (sorry, more self-archiving).

Could Ireland credibly threaten to veto an EU-UK trade deal?

For years now, Ireland and the UK have been the best of friends. Very sadly, Brexit is placing the relationship under strain. The positions of the two governments on the Irish border could not be further apart. Ireland is very clear: no trade deal that involves a physical border is acceptable. That obviously implies that the United Kingdom should seek to remain within the European Economic Area, and form a new customs union with the EU.  This would replicate its existing trade ties with the bloc, while respecting the vote to leave the EU, and avoid the need for a border within Ireland. The United Kingdom, on its part, is adamant that it must leave the customs union in order to strike separate trade deals with the United States and other countries overseas.  To be sure, it pays lip service to the importance of avoiding a border between Northern Ireland and the Republic, but this appears to be nothing more than a cynical manoeuvre. On the one hand, the magical unrealist tendency within the British government appears to think that by talking up the border issue, they can undermine the EU customs union, which has been defined by a common external tariff barrier since the 1950s. This would allow the UK to have its cake and eat it. On the other hand, the lip service will, they hope, allow the UK to place the blame for the consequences of its own decisions on Ireland and the rest of the EU.

What, if anything, can Ireland do?  As has been noted recently, the country is not powerless. While the withdrawal agreement between the UK and EU will be decided by qualified majority vote, Ireland does have a potential veto in at least two possibly relevant circumstances. First, it would have a veto should the UK seek to extend the two-year deadline for exit following its Article 50 notification.  Second, and probably more to the point, if as seems likely the UK ultimately seeks an ambitious, “mixed” trade deal with the EU that includes provisions on, for example, investment, Ireland will have a veto on that as well.

The UK therefore has the power to give Ireland something that we want: the maintenance of a border-free Ireland. There are encouraging signs that some in Britain may now be moving in that direction, but they are not currently the ones driving British policy. And down the line, Ireland will have the power to deny the UK something that it wants: a trade deal with the EU that goes beyond tariff-free trade in goods, and includes the kinds of provisions on portfolio investment that would be of interest to the City. The question therefore is: can Ireland credibly threaten to use this power in an attempt to prevent the reimposition of a border on our island? Continue reading “Could Ireland credibly threaten to veto an EU-UK trade deal?”